Iran is to help Nicaragua develop its infrastructure in return for farm products, according to a trade deal between the two countries.
Presidents Ortega (L) and Ahmadinejad are on friendly terms
Under the agreement, Iran will help develop a port and build houses and industrial sites.
In return, Nicaragua will export coffee, meat and bananas to Iran.
The two countries, which have strained relations with the US, have improved ties since Daniel Ortega became Nicaraguan President in January 2007.
Under the accords, Iran will fund a farm equipment assembly plant, four hydroelectric plants, five milk-processing plants, a health clinic, the building of 10,000 houses, and two piers in the western port of Corinto, government spokeswoman Rosario Murillo said.
Relations between the two countries have become close, with Iranian President Mahmoud Ahmadinejad visiting Managua in January and President Ortega returning the visit to Tehran in June.
But the US has warned Nicaragua that closer ties with Iran could harm its relation with Washington.
The US is worried about Iran's nuclear programme, and is also suspicious of President Ortega, who it bitterly opposed while he was in power from 1979 to 1990.